Senate plan would expand Minn. sales tax, cut rate

ST. PAUL — The debate over the size and reach of Minnesota's sales tax swept back into the state Capitol on Thursday with a Senate proposal to make everything from car repairs to dating services taxable.

A wide-ranging tax proposal from majority Senate Democrats would make a range of consumer services subject to the state sales tax while lowering the rate that gets charged on all purchases. Unlike a plan from Democratic Gov. Mark Dayton that he later gave up on, the Senate plan steers clear of taxing business-to-business services like accounting and consulting contracts.

Services covering banking, funerals, health and pet care are among those that would escape the new tax. Local governments, religious orders, nonprofits and veterans organizations wouldn't have to pay the sales tax.

Minnesota's clothing tax exemption would go away, but a new credit could be claimed on income taxes. The bill makes clear that digital downloads, such as ringtones and streamed movies are subject to the sales tax.

In exchange for the broader base, the state tax rate would fall from 6.875 percent to 6 percent starting this summer. That cut would cost the treasury about $1.2 billion in the next two years. However, the state would come out $145 million ahead overall.

Some have argued for an expanded tax base by noting that people now consume more services than goods. They say the Minnesota government's budget stability depends on adjusting for the times.

But past attempts to tax more things — even at a lower rate — have kicked up a firestorm of criticism. Dayton was at the center of it earlier this year when he suggested making most services taxable as a way to chop the sales tax rate considerably.

When he dropped his push, Dayton said it would be unfair to broaden the sales tax to consumer services while leaving businesses out. His spokesman, Bob Hume, said Thursday that Dayton “has no interest” in reviving the discussion.

The Senate tax plan, which faces more fine-tuning before a floor vote in coming weeks, also includes higher taxes on cigarettes.

For now, Senate Democrats aren't detailing their plans for the income tax. But legislative leaders have said they are likely to go along with Dayton's call to boost taxes on top earners by adding a fourth tax bracket. That provision is expected to surface as the tax proposal advances through the Senate.